LiveWire

Russia is lurching towards a major economic crisis, experts predicted yesterday, following news that the price of oil had slumped to under $50 (£33.72) a barrel. The collapse was likely to have catastrophic consequences including a possible devaluation of the rouble and a severe drop in living standards next year, they said.

With oil prices tumbling and his credibility at stake, Russia’s prime minister, Vladimir Putin, yesterday insisted that the economy was still robust. The country would survive the global financial turmoil – which he blamed on the US – he told delegates from his United Russia party.

But the Kremlin is aware that any loss of confidence in the Russian economy could lead to a loss of confidence in Putin and his ally Dmitry Medvedev, who took over from Putin as president in May.

Iran is the second largest Opec oil producer and already feeling the pain of declining prices more than any other in the Middle East. Its “rainy day” oil stabilisation fund, used to release profits when revenues decline, is reportedly badly depleted as a result of mismanagement by Mahmoud Ahmadinejad’s government. The precise figure is a state secret, but a member of parliament revealed recently it was $7bn – just enough to cover one year of imported petrol.

Ahmadinejad has seen two central bank governors resign and faces daily criticism of his policies. A strike by the powerful “bazaari” class over a new VAT tax – which would have aggravated inflation already at nearly 30% – was seen as a warning. Iran is especially vulnerable because 80% of its revenue comes from oil. The IMF calculated recently that for Iran to balance its budget, the price of crude oil must not fall below $95 a barrel. With prices now below $50 the shortfall could be staggering.

Saudi Arabia, the world’s leading oil producer and exporter, is expected to cut back on current spending and also adjust ambitious long-term development plans in the light of the slump in prices.
But cautious fiscal policies will place the kingdom in a relatively strong position, with the current budget based on a price of around $45-50 a barrel. Expansion next year will require around $55-62.
The worry must be that in a country with no elections, parliament, political parties or taxes, the combination of slowing development projects and a widening gap between the wealthy elite and ordinary people could be destabilising.

Hugo Chávez has reduced Venezuela’s support for foreign allies and is poised to make deeper cuts at home and abroad as plunging oil revenues hit his socialist revolution. The government has warned of austerity measures after years of high spending on social programmes, nationalisations, arms and diplomacy. South America’s energy giant relies on oil for half its exports and 95% of government revenue, leaving the president’s ambitions vulnerable to a crunch.